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It may interest readers to have explained how tax on farm profits are =
calculated.
As with all residents of this great land, tax is payable based on a =
taxable incomes, which is essentially, profits. Tax rates increase as =
incomes increase.(For people only. Company's tax rates are a flat 30% =
Superfunds 15%, usually).
For 2004/05 tax rates are as follows for each range of income.
$0 - $6000 =3D 0%
$6000 - $21600 =3D 18.5% (05/06 16.5%)
$21600 - $58000 =3D 31.5% (05/06 $21600 - $63000)
$58000 - $70000 =3D 43.5% (05/06 $63000 - $95000)
$70000 plus =3D 48.5% (05/06 $95000 plus)
All include 1.5% medicare levy.
Primary producers enjoy being taxed a little differently.
A farmer with a taxable income of $70,000 will pay tax calculated using =
an AVERAGE TAX RATE based on his AVERAGE TAXABLE INCOME of the last four =
years, plus the current year.
For example Mr Howard has income in 2001 of $20,000; in 2002 $60,000; in =
2003 $40,000; 2004 $50,000 and 2005 of $70,000. All these added together =
is $240,000 divided by 5 =3D an average taxable income of $48,000. Tax =
applicable to $48,000 is $11,292. $11,292 divided by $48,000 is 23.53%. =
This is the tax rate used to calculate the tax on the current years =
profit of $70,000 ie 70,000 x 23.53% =3D $16,471
NON FARMER WITH TAXABLE INCOME OF $70,000 WILL PAY TAX OF $19,662. =
FARMER WILL PAY $16,471.
This is known as "Averaging rebate" and in this example saves $3,191. It =
can save tens of thousands in tax in great years. I have found from =
advising my clients, it can often mean little benefit can be gained from =
rushing around at the end of the financial year trying to prepay =
expenses, paying into superannuation and farm management bonds for =
example. Sure these can have their places, but don't ignore the benefit =
of Averaging. It also can save HUGE dollars when a farmer sells all his =
cattle in one year to retire. Sure the tax bill is large, but as a =
percentage, it can be pretty good.
The closer the current years' profits are to the 5 year average, the =
smaller the tax benefit will be.
Regards,
Matt Stewart
Victorian Farmers' Accountants (nothing to do with VFF!)
03 59417514=
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<DIV><FONT face=3DArial size=3D2>It may interest readers to have =
explained=20
how tax on farm profits are calculated.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>As with all residents of this great =
land, tax is=20
payable based on a taxable incomes, which is essentially, profits. Tax =
rates=20
increase as incomes increase.(For people only. Company's tax rates are a =
flat=20
30% Superfunds 15%, usually).</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>For 2004/05 tax rates are as follows =
for each range=20
of income.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>$0 - $6000 =3D 0%</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>$6000 - $21600 =3D 18.5% (05/06 =
16.5%)</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>$21600 - $58000 =3D 31.5% =
(05/06 $21600 -=20
$63000)</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>$58000 - $70000 =3D 43.5% (05/06 $63000 =
-=20
$95000)</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>$70000 plus =3D 48.5% (05/06 $95000=20
plus)</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>All include 1.5% medicare =
levy.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Primary producers enjoy being taxed a =
little=20
differently.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT><FONT face=3DArial =
size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>A farmer with a taxable income of =
$70,000 will pay=20
tax calculated using an AVERAGE TAX RATE based on =
his AVERAGE TAXABLE=20
INCOME of the last four years, plus the current year.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>For example Mr =
Howard has income in=20
2001 of $20,000; in 2002 $60,000; in 2003 $40,000; 2004 $50,000 and 2005 =
of=20
$70,000. All these added together is $240,000 divided by 5 =3D an =
average taxable=20
income of $48,000. Tax applicable to $48,000 is $11,292. $11,292 =
divided by=20
$48,000 is 23.53%. This is the tax rate used to calculate the tax =
on the=20
current years profit of $70,000 ie 70,000 x 23.53% =3D =
$16,471</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>NON FARMER WITH TAXABLE INCOME OF =
$70,000 WILL PAY=20
TAX OF $19,662. FARMER WILL PAY $16,471.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>This is known as "Averaging rebate" and =
in this=20
example saves $3,191. It can save tens of thousands in tax in great =
years. I=20
have found from advising my clients, it can often mean little benefit =
can be=20
gained from rushing around at the end of the financial year trying to =
prepay=20
expenses, paying into superannuation and farm management bonds for =
example. Sure=20
these can have their places, but don't ignore the benefit of Averaging. =
It also=20
can save HUGE dollars when a farmer sells all his cattle in one =
year to=20
retire. Sure the tax bill is large, but as a percentage, it can be =
pretty=20
good.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>The closer the current years' profits =
are to the 5=20
year average, the smaller the tax benefit will be.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Regards,</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>Matt Stewart</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>Victorian Farmers' Accountants (nothing =
to do with=20
VFF!)</FONT></DIV>
<DIV><FONT face=3DArial size=3D2>03 59417514</FONT></DIV></BODY></HTML>
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